House View: Staying invested, being diversified

Our House View retains a pro-risk stance with the strongest convictions in emerging market (EM) equities, property, and infrastructure. Bonds should help diversify cyclical risks, while a neutral dollar can underpin global carry trades.

We expect a year of slightly above-trend global growth (3.1%). US growth is likely to be strong at 2.5%, supported by artificial intelligence (AI)-driven investment, positive stock market wealth effects, fiscal easing, and reduced trade uncertainty. US inflation may temporarily push higher due to delayed tariff pass-through, but underlying price pressures remain contained and inflation should ease back toward target by year end.

We are forecasting the US Federal Reserve (Fed) to hold interest rates for the remainder of Chair Jerome Powell’s term and then deliver two 0.25-percentage point cuts later in the year. Incoming chair Kevin Warsh is a credible pick, removing some of the political concerns around the central bank. However, he may look to shrink the Fed's footprint in the Treasury market.

Politics and geopolitics remain a source of considerable uncertainty globally. A structurally more volatile geopolitical environment will keep inflation volatility elevated and reduce the diversification coming from bonds, meaning investors need to find alternative sources of diversification.¹ It also raises questions about allocations to dollar-based assets because the US is the source of much of this uncertainty.

However, the baseline of positive global growth is supported by fiscal loosening in the likes of the US, Europe, and Japan. Moderating inflation and ongoing monetary easing in many economies should provide a constructive backdrop for risk assets.

For more details on the latest House View see below:

Corporate risk

Positive bias, especially toward emerging markets

Corporate earnings remain strong, particularly in technology and financials. Despite recent wobbles, AI-related equities are not (yet) in bubble territory: earnings growth remains robust, leverage is low among major tech firms and real-world use cases continue to broaden. 

That said, with the level of investment within this sector, AI correction is one of the key risks we are seeing. With valuations full for US equities, we prefer non-US markets. Indeed, EM equities remain attractive, with valuations still undemanding, resilient earnings (notably in semiconductors), and improving market technicals as investment inflows return. China’s economic slowdown looks manageable, supported by policy easing and improved investor sentiment linked to AI-related themes.

Global bonds

Protection against downside demand shocks

We maintain a positive view on government bonds. The possibility of the US labor market cracking and the likelihood of renewed easing under the next Fed chair, should support this asset class. That said, yields for bonds with longer maturities may remain elevated given fiscal pressures and higher term premia, but shorter duration debt should perform well in a cutting cycle.

Meanwhile, EM local-currency debt remains supported by improved macro fundamentals, reduced net issuance and still-favorable carry, even though more of the rate cutting cycle lies behind us than ahead.

The dollar

Neutral on conflicting drivers

We expect the dollar to remain range bound. The strong US growth outlook should be supportive of the dollar. And one source of potential dollar downside – a politicized Fed – seems to have abated with the appointment of Kevin Warsh.

But the US remains the primary source of political and geopolitical risk in the global economy, so we expect capital to continue to flow out of US assets towards more attractively valued EM and European markets. On balance, the signal is neutral the dollar, and this should support global carry trades.

Private markets

Constructive across private credit, property, and infrastructure

Key risks

Major risks include: a flare-up in geopolitical tensions causing oil prices to spike and broad risk-off sentiment to dominate; a potential AI-driven equity correction spilling into the real economy; renewed US tariff shocks; US labor-market weakness evolving into a broader downturn; and threats to Fed independence undermining US institutional credibility.

However, there are also upside risks from a strong AI-driven productivity improvement. Our investment approach emphasizes scenario analysis and stress-testing to understand exposure to these risks and diversification to mitigate potential drawdowns.¹

Endnotes

¹ Diversification does not ensure a profit or protect against a loss in a declining market.

Important information

Projections are offered as opinion and are not reflective of potential performance. Projections are not guaranteed and actual events or results may differ materially.
Foreign securities are more volatile, harder to price and less liquid than U.S. securities. They are subject to different accounting and regulatory standards, and political and economic risks. These risks are enhanced in emerging markets countries.
Fixed income securities are subject to certain risks including, but not limited to: interest rate (changes in interest rates may cause a decline in the market value of an investment), credit (changes in the financial condition of the issuer, borrower, counterparty, or underlying collateral), prepayment (debt issuers may repay or refinance their loans or obligations earlier than anticipated), call (some bonds allow the issuer to call a bond for redemption before it matures), and extension (principal repayments may not occur as quickly as anticipated, causing the expected maturity of a security to increase).

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